The European Commission has published its long-awaited Communication proposing to move to qualified majority voting (QMV) on tax files, thus replacing the current practice of Member States deciding by unanimity.
European Commission
European Commission publishes Communication proposing to use qualified majority for tax – 15 January 2019
The European Commission has published its long-awaited Communication proposing to move to qualified majority voting (QMV) on tax files, thus replacing the current practice of Member States deciding by unanimity.
In the Communication, the Commission proposes a gradual 4-step approach for introducing QMV on tax:
- Measures that have no direct impact on Member States’ taxing rights, but critical for combatting tax fraud and avoidance, e.g. administrative cooperation and international agreement; harmonized reporting obligations and such
- Tax rules designed to support other policy goals, e.g. climate change and environmental taxes
- Tax measures already largely harmonized, e.g. excise duties, VAT
- Initiatives to complete the Single Market from a tax perspective, e.g. CCCTB and digital taxation
The Communication is legally non-binding, and functions as a call for discussions and eventual action by EU Member States. Any move to QMV on tax would involve using the so-called Passerelle Clause, which allows to expand QMV to new areas without having to re-open EU Treaties.
The catch is that the Passerelle Clause will require unanimous agreement of all EU Member State parliaments. Saying that this is very difficult would be a dramatic under-statement.
Commission’s aimed time line
- Next coming months: the Commission will draft a more detailed Communication on the use of the specific Passerelle Clause for step 2 and the fight against climate change. Article 192 (2) TFEU and the specific Passerelle Clause for measures in the environmental field will open the door to taking actions in step 2
- By the end of 2019: the Commission expects EU leaders to decide on the use of the general Passerelle Clause for steps 1 and 2, after the European Parliament’s consent and the notification to the national parliaments
- By the end of 2025: the Commission expects EU leaders to decide on the use of the general Passerelle Clause for steps 3 and 4
Commission refers Italy, UK and Germany to CJEU for failure to comply with tax rules – 24 January 2019
The Commission’s latest monthly infringements package once again includes a number of tax-related cases and rulings. On top of a number of other tax cases, this time the package’s highlights include the Commission’s decision to refer Italy, the UK and Germany to the Court of Justice of the EU (CJEU).
On Italy, the European Commission referred it to the CJEU for its failure to amend its legislation that provides a reduced tax rate for Italians living abroad buying their first housing on Italian soil.
Such Italian emigrants are entitled to a preferential rate of registration tax without having to fulfil the residence requirement. However, nationals of other Member States are not entitled to any such preferential treatment except under specific circumstances.
With regard to Germany, the Commission criticises the country’s rejection of certain applications for VAT refunds for businesses in other Member States – see above action by the IVA.
Specifically, Germany refuses in some cases to refund VAT without asking for additional information from the refund applicant where it considers that the information provided on the nature of the goods and services provided is insufficient for coming to a decision on the application. This practice leads to situations where a VAT refund is denied to applicants that fulfil the substantive requirements, the Commission maintains.
And finally, the Commission argues that the UK unlawfully extended the scope of a VAT measure which allows VAT derogations for certain commodity markets.
Currently, the UK applies a zero-rate of VAT to transactions carried out on certain commodity markets in the UK (“black box”).
Since this derogation was notified to the Commission in 1977, the UK has extended the scope of the measure considerably, meaning that it is no longer limited to trading in the commodities originally covered.
European Parliament
ECON discusses definitive VAT regime, wide support for CTP – 10 January 2019
Ahead of its vote on the file on 22 January, ECON Committee held a discussion on its VAT definitive regime position. The draft report of the Committee was prepared by the MEP Fulvio Martusciello (EPP/ITA).
As a reminder and as always on tax files, the European Parliament only provides its non-binding opinion whilst the Member States make the actual decisions by unanimity
Most of the discussion revolved around the concept of a certified taxable person (CTP) – a concept that Member States are reluctant to introduce but that several European Parliament political Groups appear supportive of.
During the ECON discussion, a number of MEPs expressed their views on the Commission proposal and Mr.Martusciello`s draft report. At the beginning of the hearing, Tom Vandenkendelaere (EPP/BEL) – speaking on behalf of Mr. Martusciello – stated that he will support amendments proposed by ALDE to the draft report. These amendments call, notably, for a multilingual VAT portal, the concept of a certified taxable person (CTP) and improved transparency.
Pervenche Beres (S&D/FRA) stated that the S&D Group is also happy with the proposed more transparent criteria for CTP. She also called on the Commission to brief the European Parliament on the state of the Council negotiations on the definitive regime.
Kay Swinburne (ECR/UK) highlighted that the ECR Group is afraid that the CTP concept will label non-CTP taxpayers as unreliable businesses, especially SMEs. Therefore, ECR is proposing specific CTP criteria for smaller companies. Ms. Swinburne also fears that the CTP concept will open new fraud opportunities, and that Member States will interpret the criteria differently unless they are made more specific.
Resonating with Ms. Swinburne s concerns, Molly Scott Cato (Greens-EFA/UK) highlighted that while also the Greens support the CTP in principle, they would like to see more specific criteria in order to minimise the risk of the CTP status being used for fraud.
Speaking at the end of the hearing, a Commission representative stated that already six Council Working Party meetings have taken place to discuss the proposals, but since they include around 200 changes to VAT legislation, these technical discussions will take time. The representative could not, therefore, provide any estimations on timelines.
ECON Committee adopts position on VAT definitive regime technical measures – 22 January 2019
ECON Committee of the European Parliament has adopted the draft report on the introduction of the detailed technical measures for the operation of the definitive VAT system for the taxation of trade between Member States with 42 votes in favour, no votes against and 10 abstentions. The report was prepared by the MEP Fulvio Martusciello (EPP/Italy).
A concluding vote in Plenary was held on 12 February. As always on tax, the European Parliament merely provides its non-binding opinion whilst the Member States in the Council decide by unanimity.
Court of Justice of the EU – Rulings
C‑165/17: Morgan Stanley – Deduction of input tax – 24 January 2019
CJEU ruled that:
- Existing relevant EU legislation establishes that, in relation to the expenditure borne by a branch registered in a Member State, which is used, exclusively, both for transactions subject to value added tax and for transactions exempt from that tax, carried out by the principal establishment of that branch established in another Member State, it is necessary to apply a deductible proportion resulting from a fraction the denominator of which is formed by the turnover, exclusive of VAT, made up of those transactions alone and the numerator of which is formed by the taxed transactions in respect of which VAT which would also be deductible if they had been carried out in the Member State in which that branch is registered, including where that right to deduct stems from the exercise of an option, effected by that branch, consisting in making the transactions carried out in that State subject to VAT.
In order to determine the deductible proportion applicable to the general costs of a branch registered in a Member State, which are used for both transactions of that branch in that State and transactions of the principal establishment of that branch established in another Member State, account must be taken, in the denominator of the fraction which makes up that deductible proportion, of the transactions carried out by both that branch and that principal establishment, it being specified that it is necessary that, in the numerator of that fraction, besides the taxed transactions carried out by that branch, solely the taxed transactions carried out by that principal establishment must appear, in respect of which VAT would also be deductible if they had been carried out in the State in which the branch concerned is registered.
